Why are supermarkets moving into banking?

With Coles and GE Capital announcing their intention to form a "financial services joint venture", questions are being raised about the impact of Coles' move into banking on consumers.

Coles and GE have signed a memorandum of understanding for a 50:50 joint venture business to be launched in 2015, subject to regulatory approval. Initially, they will be offering credit cards and personal finance products. Coles said in a statement that the new products will be linked to Flybuys, its loyalty reward program.

Coles has been making the move into banking for several years now.

Rumours have been swirling of a team of "high-level strategists" working on the supermarket's banking plans in a sealed-off section of the supermarket's headquarters in Melbourne. The supermarket has also recently trademarked the brand "Coles Money", stating it would use the trademark in financial, monetary and banking services, and insurance services. "Coles Financial Solutions" and "Coles Financial Group" were also trademarked by the company.

The company has already amassed 400,000 credit card customers through their existing offering. And those customers are bound by a privacy policy that is riddled with concerning clauses.

Coles and its privacy policies

CHOICE has found that the Coles credit card privacy policy states that the company may collect personal information in relation to your interactions and transactions with Coles and any other business under the umbrella of its parent company Wesfarmers group (as does its Flybuys privacy policy). This includes information about:

the use of your Flybuys card or number or associated identifiers such as payment cards

purchases made in-store or online

your participation in promotions, competitions and surveys

your use of any Coles services.

And more worryingly still, the company says it may also collect personal information about you from third parties including public sources, information service providers, providers who administer Coles-branded products and services such as payment cards and insurance, anyone authorised to act on your behalf, and other Wesfarmers group companies, including Flybuys.

Coles isn't just going to be holding on to that credit card customer data – they'll be sharing it, both locally and internationally. Coles and Wesfarmers group companies (which will, subject to regulatory approval, soon include GE Capital), may exchange your personal information with others for such purposes as:

data processing

data analysis

information broking

credit reporting

online computing and printing

contact management

legal

accounting

business consulting

marketing

research

auditing

investigation and mailing services

the provision of Coles-branded products and services such as payment cards and insurance.

Considering the volume of information Coles has about its customers, including about their shopping habits, household income, spending patterns, life stages and more, the move could have an unprecedented impact on consumers, and unforeseen consequences. For example, data is fast becoming a source of power in markets, and could present a significant barrier to new entrants, an issue CHOICE raised in our recent submission to the federal government's Competition Policy Review. Consumers could also find themselves targeted for insurance products they don't want, or on the receiving end of marketing for financial products that aren't suitable for them.

Worryingly, Woolworths last year told an industry publication that it was able to use its insurance arm's database and its Everyday Rewards loyalty program's statistics to link customers' shopping habits to driving habits, allowing the supermarket giant to target consumers for their insurance products based on what they put in their trolleys and when.

Scope creep in privacy policies a potential issue

With privacy policies that effectively allow Wesfarmers to use and share personal data gathered by any of its various business ventures, the potential for scope creep – where consumers sign a privacy policy expecting their data will be used in a particular way, but this changes as the business changes – is concerning.

Move comes after GE Capital fined $1.5m

GE Capital has been making headlines of late, after being ordered to pay a penalty of $1.5m for making false or misleading representations to more than 700,000 of its credit card customers. The federal court found the company told certain credit card customers between 5 January and 27 May 2012 that to activate their credit card or apply for an increased credit limit they also had to consent to receiving invitations to apply for credit limit increases.